Question

Refer to Apple's financial statements in Appendix A to answer the following. 1. What percent of the original cost of Apples Property, Plant and Equipment account remains to be depreciated as of (a) September 28, 2019, and (b) September 29, 2018? Assume these assets have no salvage value and the entire account is depreciable. Hint:Accumulated Depreciation is listed under Property, Plant and Equipment in the notes to Apples financial statements in Appendix A. 2. Much research and development are needed to create the next iPhone. Do companies capitalize and amortize research and development costs over the life of the product, or are research and development costs expensed as incurred? 3. Compute Apples total asset turnover for the year ended (a) September 28, 2019, and (b) September 29, 2018. Total assets at September 30, 2017, are $375,319 ($ millions). 4. Using the results in part 3, is the change in Apples asset turnover favorable or unfavorable?

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Refer to Apple's financial statements in Appendix A to answer the following. 1. What percent of the original cost of Apple's Property, Plant and Equipment account remains to be depreciated as of (a) September 28, 2019, and (b) September 29, 2018? Assume these assets have no salvage value and the entire account is depreciable. Hint: Accumulated Depreciation is listed under "Property, Plant and Equipment" in the notes to Apple's financial statements in Appendix A. 2. Much research and development are needed to create the next iPhone. Do companies capitalize and amortize research and development costs over the life of the product, or are research and development costs expensed as incurred? 3. Compute Apple's total asset turnover for the year ended (a) September 28, 2019, and (6) September 29, 2018. Total assets at September 30, 2017, are $375,319 ($ millions). 4. Using the results in part 3, is the change in Apple's asset turnover favorable or unfavorable? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 What percent of the original cost of Apple's Property, Plant and Equipment account remains to be depreciated as of (a) September 28, 2019, and (b) September 29, 2018? Assume these assets have no salvage value and the entire account is depreciable. Hint: Accumulated Depreciation is listed under "Property, plant and Equipment" in the notes to Apple's financial statements in Appendix A. (Round your answers to 1 decimal place.) Show less A % of Original Cost % (a) September 28, 2019 (6) September 29, 2018 % Required 1 Required 2 > Refer to Apple's financial statements in Appendix A to answer the following. 1. What percent of the original cost of Apple's Property, Plant and Equipment account remains to be depreciated as of (a) September 28, 2019, and (b) September 29, 2018? Assume these assets have no salvage value and the entire account is depreciable. Hint: Accumulated Depreciation is listed under "Property, Plant and Equipment" in the notes to Apple's financial statements in Appendix A. 2. Much research and development are needed to create the next iPhone. Do companies capitalize and amortize research and development costs over the life of the product, or are research and development costs expensed as incurred? 3. Compute Apple's total asset turnover for the year ended (a) September 28, 2019, and (6) September 29, 2018. Total assets at September 30, 2017, are $375,319 ($ millions). 4. Using the results in part 3, is the change in Apple's asset turnover favorable or unfavorable? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Much research and development are needed to create the next iPhone. Do companies capitalize and amortize research and development costs over the life of the product, or are research and development costs expensed as incurred? Research and developments costs are: Appendix A Financial Statement Information A-1 APPLE September 29, 2018 Apple Inc. CONSOLIDATED BALANCE SHEETS (In millions, except number of shares which are reflected in thousands and par value) September 28, 2019 ASSETS Current assets Cash and cash equivalents 48,844 Marketable securities 51,713 Accounts receivable, net 22,926 Inventories 4,106 Vendor non-trade receivables 22,878 Other current assets 12,352 Total current assets 162,819 Non-current assets - Marketable securities 105,341 Property, plant and equipment, net 37,378 Other non-current assets 32,978 Total non-current assets 175,697 Total assets 338,516 25,913 40,388 23.186 3,956 25,809 12,087 131,339 170,799 41,304 22,283 234,386 365,725 S S 46.236 37,720 5,522 55,888 33.327 5,966 11,964 8,784 115.929 O 5,980 10,260 105,718 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable Other current liabilities Deferred revenue Commercial paper Term debt Total current liabilities Non-current liabilities Term debt Other non-current liabilities Total non-current liabilities Total liabilities Commitments and contingencies Shareholders' equity Common stock and additional paid-in capital, $0.00001 par value: 12,600,000 shares authorized: 4.443.236 and 4.754.986 shares issued and outstanding, respectively Retained earnings Accumulated other comprehensive income (loss) Total shareholders' equity Total liabilities and shareholders' equity 91.807 50,503 142.310 248.028 93,735 48.914 142,649 258,578 45,174 45,898 (584) 90.488 338,516 40,201 70,400 (3,454) 107.147 365.725 See accompanying Notes to Consolidated Financial Statements. A-2 Appendix A Financial Statement Information September 30, 2017 $ 196,534 32.700 229,234 126,337 14,711 141,048 88,186 Apple Inc. CONSOLIDATED STATEMENTS OF OPERATIONS (In millions, except number of shares which are reflected in thousands and per share amounts) Years ended September 28, 2019 September 29, 2018 Net sales: Products 213,883 225.847 Services 46,291 39,748 Total net sales 260,174 265,595 Cost of sales: Products 144,996 148,164 Services 16,786 15,592 Total cost of sales 161,782 163,756 Gross margin 98,392 101.839 Operating expenses: Research and development 16,217 14,236 Selling, general and administrative 18,245 16,705 Total operating expenses 34,462 30,941 Operating income 63,930 70,898 Other income (expense), net , 1,807 2.005 Income before provision for income taxes 65.737 72,903 Provision for income taxes 10,481 13,372 Net income 55,256 59,531 Earnings per share: : Basic 11.97 $ 12.01 Diluted $ 11.89 S 11.91 Shares used in computing earnings per share: Basic 4,617,834 4,955,377 Diluted 4,648,913 5,000,109 11.581 15.261 26,842 61.344 2,745 64,089 15,738 48,351 $ $ S 9.27 9.21 5,217,242 5,251,692 See accompanying Notes to Consolidated Financial Statements. Apple Inc. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In millions) Years ended September 28, 2019 September 29, 2018 September 30, 2017 Net income $ 55,256 $ 59,531 $ 48,351 Other comprehensive income (loss): Change in foreign currency translation, net of tax (408) (525) 224 Change in unrealized gains/losses on derivative instruments, net of tax: Change in fair value of derivatives (661) 523 1.315 Adjustment for net (gains) losses realized and included in net income 23 382 (1,477) ) Total change in unrealized gains/losses on derivative instruments (638) 905 (162) Change in unrealized gains/losses on marketable securities, net of tax: Change in fair value of marketable securities 3,802 (3,407) (782) Adjustment for net (gains) losses realized and included in net income 25 (64) Total change in unrealized gains/losses on marketable securities 3,827 (3,406) (846) Total other comprehensive income (loss) 2,781 (3,026 (784) Total comprehensive income 58,037 $ 56,505 $ 47,567 See accompanying Notes to Consolidated Financial Statements, A-4 Appendix A Financial Statement Information Apple Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) Years ended September 28, 2019 September 29, 2018 September 30, 2017 Cash, cash equivalents and restricted cash, beginning balances $ 25,913 20,289 $ 20,484 Operating activities Net income 55,256 59,531 48,351 Adjustments to reconcile net income to cash generated by operating activities: Depreciation and amortization 12,547 10,903 10,157 Share-based compensation expense 6,068 5,340 4,840 Deferred income tax expense (benefit) (340) ) (32,590) 5,966 Other (652) (444) (166) ) Changes in operating assets and liabilities: Accounts receivable, net 245 (5,322) (2,093) Inventories (289) 828 (2,723) Vendor non-trade receivables 2,931 (8,010) (4,254) Other current and non-current assets 873 (423) (5,318) Accounts payable (1.923) 9,175 8,966 Deferred revenue (625) (3) (593) Other current and non-current liabilities (4,700) 38,449 1,092 Cash generated by operating activities 69,391 77.434 64,225 Investing activities Purchases of marketable securities (39,630) (71,356) (159,486) Proceeds from maturities of marketable securities 40,102 55,881 31,775 Proceeds from sales of marketable securities 56,988 47.838 94,564 Payments for acquisition of property, plant and equipment (10,495) (13,313) (12,451) Payments made in connection with business acquisitions, net (624) (721) Purchases of non-marketable securities (1,001) (1,871) (521) Proceeds from non-marketable securities - 1,634 353 126 Other (1,078) (745) (124) Cash generated by (used in) investing activities 45,896 16,066 (46,446) Financing activities Proceeds from issuance of common stock 781 669 555 Payments for taxes related to net share settlement of equity awards (2,817) (2,527) (1,874) Payments for dividends and dividend equivalents (14,119) (13,712) (12,769) Repurchases of common stock (66,897) (72,738) (32,900) Proceeds from issuance of term debt, net 6,963 6,969 28,662 Repayments of term debt (8,805) (6,500) (3,500) Proceeds from (Repayments of) commercial paper, net (5.977) (37) 3,852 Other (105) Cash used in financing activities (90,976) (87,876) (17,974) Increase (decrease) in cash, cash equivalents and restricted cash 24,311 5,624 (195) Cash, cash equivalents and restricted cash, ending balances $ 50,224 25,913 S 20,289 o (329) Supplemental cash flow disclosure: Cash paid for income taxes, net Cash paid for interest $ $ 15.263 3,423 $ $ 10,417 3,022 $ $ s 11.591 2,092 See accompanying Notes to Consolidated Financial Statements. Apple Inc. Notes-continued 2018 $ 5,686 Other Income and Expense $ millions Interest and dividend income Interest expense Other income (expense), net Total other income (expense), net 2019 $ 4,961 (3,576) 422 $ 1,807 (3.240) 2017 $ 5,201 (2,323) (133) $ 2,745 (441) $ 2,005 equipment, Cash Equivalents and Marketable Securities All highly liquid investments with maturities of three months or less at the date of purchase are classified as cash equivalents. The Company's investments in marketable debt securities have been classified and accounted for as avail- able-for-sale. The Company classifies its marketable debt securities as either short-term or long-term based on each instrument's underlying contractual maturity date. Unrealized gains and losses on on marketable debt securities classified as available-for-sale are recognized in other com- prehensive income/(loss) ("OCI"). The Company's investments in marketable equity securi- ties are classified based on the nature of the securities and their availability for use in current operations. The Compa- ny's marketable equity securities are measured at fair value with gains and losses recognized in other income/expense), net ("OI&E"). The cost of securities sold is determined us- ing the specific identification method. Inventories Inventories are measured using the first-in, first-out method. Property, Plant and Equipment Depreciation on property, plant and equipment is recog- nized on a straight-line basis over the estimated useful lives of the assets, which for buildings is the lesser of 30 years or the remaining life of the underlying building; between one and five years for machinery and including product tooling and manufacturing process equipment; and the shorter of lease term or useful life for leasehold im- vements. Capitalized costs related to internal-use soft- ware are amortized on a straight-line basis over the estimated useful lives of the assets, which range from three to five years. Depreciation and amortization expense on property and equipment was $11.3 billion, $9.3 billion and $8.2 billion during 2019, 2018 and 2017, respectively. $ millions 2019 2018 Land and buildings $17,085 $16,216 Machinery, equipment and internal-use software 69,797 65,982 Leasehold improvements 9,075 8,205 Gross property, plant and equipment 95,957 90,403 Accumulated depreciation and amortization (58,579) (49,099) Total property, plant and equipment, net $37,378 $41,304 Fair Value Measurements The fair values of the Company's money market funds and certain marketable equity securities are based on quoted prices in active markets for identical assets. The valuation techniques used to measure the fair value of the Company's debt instruments and all other financial instruments, which generally have counterparties with high credit ratings, are based on quoted market prices or model-driven valuations using significant inputs derived from or corroborated by observable market data. expected Restricted Cash and Restricted Marketable Securities The Company considers cash and marketable securities to be restricted when withdrawal or general use is legally re- stricted. The Company records restricted cash as other as- sets in the Consolidated Balance Sheets, and determines current or non-current classification based on the current duration of the restriction. The Company records restricted marketable securities as current or non-current marketable securities in the Consolidated Balance Sheets based on the classification of the underlying securities. The Company's restricted cash primarily consisted of cash required to be on deposit under a contractual agree- ment with a bank to support the Company's iPhone Up- grade Program Accounts Receivable (Trade Receivables) The Company has considerable trade receivables outstand- ing with its third-party cellular network carriers, wholesal- ers, retailers, resellers, small and mid-sized businesses and education, enterprise and government customers. As of September 28, 2019, the Company had no custom- ers that individually represented 10% or more of total trade receivables. As of September 29, 2018, the Company had one customer that represented 10% or more of total trade re- ceivables, which accounted for 10%. The Company's cellular network carriers accounted for 51% and 59% of total trade receivables as of September 28, 2019 and September 29, 2018, respectively. Financial Instruments The Company typically invests in highly rated securities, with the primary objective of minimizing the potential risk of prin- cipal loss. The Company's investment policy generally re- quires securities to be investment grade and limits the amount of credit exposure to any one issuer. Fair values were deter- mined for each individual security in the investment portfolio. Accrued Warranty and Guarantees The following table shows changes in the Company's accrued warranties and related costs for 2019 and 2018: $ millions Beginning accrued warranty and related costs Cost of warranty claims Accruals for product warranty Ending accrued warranty and related costs 2019 2018 $ 3,692 $ 3.834 (3.857) (4,115) 3,735 3,973 $ 3,570 $ 3,692 Apple Inc. Notes-continued APPLE Other Non-Current Liabilities S millions Long-term taxes payable Other non-current liabilities Total other non-current liabilities 2019 2018 $29,545 $33,589 20.958 15,325 $50,503 $48,914 the Company's financial condition and operating results for that reporting period could be materially adversely af- fected. In the opinion of management, there was not at least a reasonable possibility the Company may have incurred a material loss, or a material loss greater than a recorded accrual, concerning loss contingencies for asserted legal and other claims, except for the following matters: VirnetX iOS Performance Management Cases Qualcomm French Competition Authority Term Debt As of September 28, 2019, the Company had outstanding floating- and fixed-rate notes with varying maturities for an aggregate principal amount of $101.7 billion (collectively the Notes). The Notes are senior unsecured obligations and interest The Company recognized $3.2 billion, $3.0 billion and $2.2 billion of interest cost on its term debt for 2019, 2018 and 2017, respectively. The future principal payments for the Company's Notes as of September 28, 2019 are as follows (in millions): payable i in arrears. Disaggregated Revenue by Significant Products and Services Net sales (mil.) 2019 2018 2017 iPhone $142,381 $164,888 $139,337 Mac 25,740 25,198 25,569 iPad 21,280 18,380 18,802 Wearables, Home and Accessories 24,482 17.381 12,826 Services 46,291 39,748 32.700 Total net sales $260,174 $265,595 $229,234 2020 2021 2022 2023 2024 Thereafter Total term debt $ 10,270 8,750 9,528 9.290 10,039 53,802 $101.679 2019 2018 2017 $116,914 $ 35,099 $112,093 $ 34,864 $96,600 $30,684 As of September 28, 2019 and September 29, 2018, the fair value of the Company's Notes, based on Level 2 inputs, was $107.5 billion and $103.2 billion, respectively. $ 60,288 $ 19,195 $ 62,420 $ 19,955 $54,938 $16,514 Reportable segment (mil.) Americas: Net sales Operating income Europe: Net sales Operating income Greater China: Net sales Operating income Japan: Net sales Operating income Rest of Asia Pacific: Net sales Operating income $ 43,678 $ 16,232 $ 51,942 $ 19,742 $44.764 $17,032 $ 21.506 $ 9,369 $ 21.733 $ 9,500 Share Repurchase Program On April 30, 2019, the Company announced the Board of Directors increased the current share repurchase pro- gram authorization from $100 billion to $175 billion of the Company's common stock, of which $96.1 billion had been utilized as of September 28, 2019. During 2019, the Company repurchased 345.2 million of its common stock for $67.1 billion, including 62.0 mil- lion shares delivered under a $12.0 billion accelerated share repurchase arrangement dated February 2019, which settled in August 2019. The Company's share re- purchase program does not obligate it to acquire any spe- cific number of shares. $17.733 $ 8,097 shares $ 17,788 $ 6,055 $ 17,407 $ 6,181 $15,199 $ 5,304 A reconciliation of the Company's segment operating income to the Consolidated Statements of Operations for 2019, 2018 and 2017 is as follows: 2019 $ 85,950 2018 $ 90.242 2017 $77,631 Conting The Company is subject to various legal proceedings and claims that have arisen in the ordinary course of business and that have not been fully resolved. The outcome of litigation is inherently uncertain. If one or more legal matters were resolved against the Company in a report- ing period for amounts above management's expectations, $ millions Segment operating income Research and development expense Other corporate expenses, net Total operating income (16,217) (5.803) $ 63,930 (14,236 (5,108) $ 70,898 (11,581) (4,706) $61,344